Monthly Archive for: ‘June, 2007’

The Failure of CAPM, Compression of Risky Asset Spreads and Paths Back to Normalcy

Harry Markowitz, one of the original founders of modern portfolio theory, recently explored in a simple yet elegant paper how the capital asset pricing model (CAPM) crumbles in the real world (Markowitz, 2006). A striking consequence of this paper, which he does not mention but is relevant for investors today, is that the increasing availability [...]